First was Nevada, next came Missouri. In less than a month, these two states passed legislation regulating the earned wage access industry. Companies now need to become licensed in these two states to give workers early access to paychecks. 

Trade associations including the Financial Technology Association and the American Fintech Council have expressed satisfaction with the new guidance. But consumer advocacy groups such as the National Consumer Law Center say that workers are just getting a new flavor of payday loans. 

Are these state laws legitimizing a predatory practice? Or are they bringing oversight to a valuable new tool for workers? Nico Simko, the CEO of fintech Clair, which provides EWA to employees, weighed in on the topic during an interview with Payments Dive.

Editor’s note: This interview has been edited for clarity and brevity.

PAYMENTS DIVE: EWA companies have been around for nearly a decade. So why are states like Nevada and Missouri passing EWA legislation now?

NICO SIMKO: I don’t think it’s something that started in the past few months. This is five or six years of work that is now coming to fruition. I think this happened because lending is up to individual states as opposed to the national government.

A national bank can preempt state rules. But a lot of players realize it’s hard to work with a national bank, because they have a lot of oversight. So what they do instead is try to pass state legislation to get regulatory certainty.

Regulatory certainty?

Should you charge a worker a $3 fee for a $100 advance? Should you disclose the (annual percentage rate) so they can make an informed decision? There are a lot of questions around EWA practices. And what EWA providers have rightfully said is, we need to go state by state and get them to enact these rules. Because that seems easier than partnering with a national bank.

So pursuing state legislation is actually good for EWA providers?

If you don’t have regulatory certainty, it’s very, very hard to build a product. You’re using a lot of your resources to build something without any guidance. And if there suddenly is new guidance, regulation or enforcement then you’re wasting resources responding to that.

Is Clair going the state-by-state route, too?

Clair is partnering with Pathward, a national bank. They are responsible for doing the wage advances. We don’t need new legislation for that because they have a special body of rules that already allow us to do this. 

But this kind of partnership requires a license and it takes two or three years. So I’d be supportive of more regulatory certainty at the state level. Until then, we’re gonna stick to our national bank partnership, because that gives me certainty in a time when there’s not.

What do you think about the EWA conversations happening in California?

I really commend California for taking its time to analyze what the data is saying. It takes time to weigh the pros and the cons of this service. There’s still a big debate in California about whether this is lending or not.

On that topic, your critics would say EWA is just a fintech version of a payday loan. Do you think that's a fair critique?

I think there’s a little bit of inaccuracy there. A payday loan is when you go to an employee without access to their payroll or time and attendance data. So you’re underwriting a lot of risk and therefore charging a lot of money.

Do Clair users end up paying to get their wages early? 

We make money off of interchange fees. Because we’re the primary bank account for these users, they use the Clair debit card to swipe for 80% of their expenses. We make about 1% net on every transaction from our revenue share with Mastercard, and that generates $10 a month per customer. So we make $120 a year (per customer) and employers didn’t have to pay, employees didn’t have to pay and partners didn’t have to pay.

So there isn't an instant access fee?

There’s none.

By James Pothen on July 20, 2023
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